Americans are saving too much now and why that might be bad for the economy

The national personal saving rate is now running at double the pre-pandemic levels, in part due to government relief money that flowed into American households.

Among those driving that number is Melissa James, a 31-year-old diversity consultant in the Boston area. Prior to the pandemic, she led the life of a single professional whose spending habits supported the economy in Boston and beyond. Heading into her office at the We Work by South Station, she would grab a grande Starbucks iced caramel macchiato and order lunch from SweetGreen. She would eat out at a restaurant or get a drink at a bar four or five times a week, and take three to four international trips a year.

Now James works from home, and isn’t getting on a plane anytime soon. She bought her first cookbook and learned how to cook.

“I have perfected the chicken piccata,” said James, adding that she also knows how to whip up her family’s traditional Jamaican dish of salt fish and fried dumplings.

A financial planner had once advised her to change her lifestyle to save money, but James declined. Now, she estimates she is saving about $2,000 a month. “Apparently, all I needed is a stay-at-home advisory,” James quipped.

Then there is Gary McNabb, a retired registered nurse in Groton. He grew up “really poor” in Brighton public housing, he said, one of four kids whose father, a Boston Police officer, was killed in the line of duty in 1968. As an adult, he and his second wife lived frugally in a cramped condo until they got his children through private school and college.

Now 63, McNabb and his wife are hunkering down again because they don’t want to get COVID-19. The couple no longer eats out three or four days a week or goes to the movies regularly. They dropped their gym membership. There was no summer vacation in Maine or Rhode Island; trips to see family in Arizona and California were called off; and Gary backed out of a once-in-a-lifetime fishing adventure in Alaska that would have cost $20,000.

And that’s all fine with McNabb. He and his wife are enjoying bike rides on the Nashua Rail Trail, walks in the town forest, shopping at farm stands, and spending time with neighbors.

“I don’t feel deprived at all,” he said.

Americans have long spent more and saved less than counterparts in Europe and Asia. Consumer spending fuels almost 70 percent of the US economy, compared with 39 percent in China, 52 percent in Germany, and 58 percent in Canada, according to the World Bank. Meanwhile, among the seven largest industrial countries, the United States has the highest level of personal debt as a percentage of the economy after Canada, data from the International Monetary Fund show.

To be sure, the nation’s present personal saving rate of 14.1 percent — calculated as the percentage of income left after taxes and expenses — is an imperfect barometer of the average consumer behavior. That’s because not everyone has the wherewithal to save money.

The reality is the savings rate is far lower or nonexistent for low-income households and those who have lost their jobs during the pandemic, while high-income households and those who remain employed are saving far more in part because many have been working from home and have been able to reduce daily out-of-pocket expenses.

Low- and moderate-income workers often live paycheck to paycheck, and some 2.1 million claims for unemployment benefits have been filed in Massachusetts during the pandemic. A Federal Reserve study in April indicated that 36 percent of adults could not pay an unexpected $400 expense with cash, savings, or a credit card bill that could be paid off by the next statement. A recent NPR/Harvard poll found that 44 percent of households with children reported using up most or all of their savings during the coronavirus outbreak.

Moreover, some Americans have been able to save in part because personal incomes were buoyed by an infusion of funds from the federal government over the spring and into part of the summer. According to the Bureau of Economic Analysis, Massachusetts personal income surged 76 percent in the second quarter from the preceding quarter, more than any other state, fueled by an increase of almost $109 billion in government transfers including enhanced unemployment benefits and stimulus checks.

That money is running out.

“There is a lot of uncertainty” for consumers, said Jill Fopiano, chief executive of O’Brien Wealth Partners in Boston, about the path of the virus and economy, and how the presidential election will play out. “That has driven home the importance of a rainy day fund.”

Spending has been on the rise as states reopened their economies. Since May 18, when Massachusetts began to lift stay-at-home restrictions, consumers have steadily increased spending, especially on apparel and general merchandise, according to data tracked by Opportunity Insights, a research group at Harvard University. Spending here is now 5.5 percent above January levels, while nationally it remains down nearly 4 percent.

Still, the national savings rate remains at historically high levels, even after declining from its peak of 33.7 percent in April. Prior to the pandemic, Americans had put aside much less money. From 1959 through 1984, the monthly rate averaged 11.6 percent. Since then through February, it averaged 6.7 percent.

David Laibson, a Harvard economist who specializes in household finances, said he sees a potential silver lining in a temporary elevated savings rate. When consumers are ready to go back to their routines, they will have more cash on hand to spend, which could ultimately help the economy bounce back faster.

Data compiled from the Bureau of Economic Analysis implies that in aggregate US households saved an additional $1.2 trillion more from February through August.

“That extra $1.2 trillion is dry powder that is ready to be deployed when households feel comfortable spending again,” said Laibson.

While consumers can wait out the virus, companies that rely on social consumption, from restaurants to hotels, don’t have time on their side. They’ve already laid off workers and lost revenue, and they’re not sure how long they can hang on.

“There is long-term damage happening to the labor market in these sectors,” said IHS Markit economist David Deull. “This long-term damage takes time to heal. It certainly is going to worsen the income gap and wage gap once again.”

These sectors may be anxious for consumers to return to their spendthrift ways, but for some people the pandemic has become an opportunity to no longer live beyond their means.

Boston hair salon owner Pedro Aguirre, 39, has saved so much by eating at home and eliminating Uber trips that he has paid off about $12,000 in credit card debt.

“I am going to get to 40 and not have so much debt, and it’s going to be amazing,” said Aguirre, the owner of Vanity Loft in Mission Hill.

He expects that when there is a vaccine, he will still splurge on an annual monthlong vacation, but he won’t be eating out and drinking like he used to.

“Being able to save and pay off the debt has been so emotionally impactful,” said Aguirre. “I don’t want to go back to spending recklessly. That’s what it feels like now. Do I need to eat out every day? Do I need to spend $10 on coffee?”

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